One step forward, two steps back as rents slip in Sydney’s apartment market: Domain Group

The cost of renting an apartment in Sydney has fallen for the first time in two years, while rent prices for houses have risen to new highs, data released on Tuesday shows.

The median asking rent for apartments, which is the figure advertised to tenants, fell by 1 per cent to $520 a week in December, Domain Group’s Rent Report found. Despite the fall, apartment rents are still 2 per cent higher over the year.

This is the first fall the booming market has seen since September 2014. The last drop in apartment rents was in 2009, post-global financial crisis.

Sydney’s apartment rents fell, just slightly, over the December quarter. Photo: Patrick Cummins

Experts say the weakness over the quarter could be the first signs of new supply pushing into the market, as well as a simple inability for tenants to pay more.

Domain Group chief economist Andrew Wilson said rental markets were still very expensive in Sydney and the house results should be “alarming” to tenants.

“Up until this quarter apartment rents seemed to be catching up to houses. This [weakening for apartments] might now become a broader trend, but we’ll have to wait for more data to see whether it continues.”

Real Estate Institute of NSW chief executive Tim McKibbin said there had been an increase in apartment development, but was not convinced Sydney was facing an oversupply.

“I think it is more that we are at a point where people can’t afford to pay any more rent than they are so the market flattens out,” he said.

“People just can’t afford the Sydney market, especially as wages aren’t keeping pace with the increases in property prices. There has to be a point where people can’t afford to keep going up with rent as well.”

This is being seen in the inner-west and Canterbury-Bankstown, where Richardson & Wrench Hurlstone Park leasing consultant Angela Caukill noticed older apartments dropping their prices to “try and compete with the brand new” developments.

“[But] houses of any type are super popular and usually don’t last on the market more than a week,” Ms Caukill said, also noting a drop in vacancy rate.

But house rents told the opposite story in December – they were up 1.9 per cent over the quarter to a record $540 a week.

“Sydney’s house rent is a concerning result and for those wanting a house there’s no relief from rent stress yet,” Dr Wilson said.

Vacancy rates also crept up over 2016 in Sydney, up from 1.7 per cent in December 2015 for houses to 2.1 per cent. The apartment vacancy rate increased from 2.1 per cent to 2.3 per cent over the year.

“We shouldn’t be too surprised that now we have more offerings in the apartment market there has been an easing in the rents.

“But there was growth in rent for apartments over the year – so it’s not really a good story for tenants, it’s one step forward, two steps back,” he said.

Tenants Union of NSW senior policy officer Ned Cutcher also found house rents went up faster than apartment rents on Rental Bond Board data for 2016, though started to taper off at the end of the year.

“Asking rents appears to be slowing faster than actual rents paid, which indicates something of a loss of confidence in the market from landlords,” Mr Cutcher said.

“Perhaps they’re anticipating new supply will have an impact on vacancy rates, along with uncertainty about interest rates, so they’re coming in a little lower in order to establish a tenancy ahead of other landlords within their locality.”